Southeast Asia and its startup economy

Southeast Asia and its startup economy

by Audi Prabowo , MBA ’18

Home to more than 650 million people spread across 11 countries, Southeast Asia has seen an uptick in trade since the end of the Vietnam War. Recently, the Association of Southeast Asian Nations (ASEAN) has pushed for free trade policies that enable the flow of goods, services, and people across member states. In 2016, Southeast Asia’s nominal GDP reached $2.56 trillion,[1] with Indonesia, Malaysia, Singapore, Thailand, Philippines, and Brunei Darussalam contributing $2.25 trillion, or 88% of the sum. On a macro-level, however, the region trades very little internally: only ~24% of the Southeast Asia’s trade occurs between ASEAN nations, and the remaining trade is with parties outside the region such as the United States, China, and the European Union.[2]

Southeast Asia is experiencing one of the fastest growth rates in the world, with an average regional growth of 2.6% between 2011 and 2016.[3] During that time, Indonesia, Vietnam, Laos, and Myanmar exhibited the majority of the growth, pushing more than 10% annual domestic growth. The ASEAN Economic Community initiative, implemented in 2015, opened up trade and labor movement in a more specified manner than ever before. According to the McKinsey Global Institute, the initiative could provide $280-625 billion of additional GDP for each country by 2030.[4] Various analysts, including those of the Asian Development Bank (ADB),[5] speculate that the region will have four trillion-dollar economies by 2030 as well. Indonesia may hit the mark by 2020, and Malaysia, Thailand, and the Philippines should follow suit.

This article aims to cover the region’s three primary growth drivers: 1) a large young population and a growing middle-class; 2) the region’s special relationship with China; 3) the influx of investments in the technology and startup sector that has given rise to local unicorns.

The ADB believes that Southeast Asia will have immense purchasing power by 2030 due to its young population of future potential middle-class consumers. McKinsey predicts that Indonesia alone will have 170 million consuming-class citizens with disposable income of above $3,600 per annum, per 2005 purchasing power parity (PPP).[6] This translates to increased consumer-facing business potential, similar to the U.S.’ experience before the 1973 oil crisis, or China’s experience before the 2008 Global Financial Crisis. The firm also noted that more than 50% of Indonesia’s population of 260 million and the Philippines’ population of 100 million are below 40 years of age. This demographic creates a highly productive labor force with immense growth potential that, assuming education growth follows the trend, will be technologically competent and competitive.

Southeast Asia also has a close relationship with the world’s most populous country, China, which is the region’s largest trade partner and closest geopolitical influencer. China has invested more than $30 billion in infrastructure projects and manufacturing facilities in 2016 alone,[7] exceeding any recent investments made by the U.S. or any European countries. Southeast Asia, especially Indonesia, is a key segment of China’s “One Belt, One Road” initiative.[8] This modern-day Silk Road aims to reform the global shipping and logistics market to increase efficiency as it links China with Southeast Asia, the Middle East and Africa, Central Europe and Central Asia. The region’s relationship with the Asian Infrastructure Investment Bank (AIIB) makes this immense project possible. AIIB is a multilateral development agency headquartered in Beijing, but Indonesia is part of its Senior Management.[9] In addition, China’s investment does not stop at old-world initiatives such as factories and ports. Major Chinese companies have invested into Southeast Asia’s startup ecosystem, engaging in investment-based proxy wars with U.S. titans such as Google, KKR, and Warburg Pincus.

Startups in Southeast Asia

Southeast Asia’s booming economy and openness to trade and investment have created an ecosystem ripe for rapid growth in the startup sector. Currently, Southeast Asia has seven unicorns,[10] many of which are e-commerce companies or ride-hailing companies, such as Grab and GoJek. Considering that India has eight unicorns with a population of 1.4 billion, twice the population of Southeast Asia, this is a notable achievement. Well-known institutions from both China and the West are financially backing many of these startups. Indonesia’s GoJek, for example, raised $1.5 billion in Series E funding through investors like Google and China’s Tencent. This high-level backing allowed GoJek to expand outside its core country to major markets such as Singapore, Malaysia, Thailand, and the Philippines. Analysts pointed to Grab’s Japanese backer Softbank as a catalyst for the Singaporean company’s takeover of Uber’s Southeast Asia operations last March 2018,[11] creating a localized strategy and brand while consolidating the ride-hailing market across the region. These valuations are not merely overhyped Excel models. According to Bain & Company,[12] total spending in the region’s Internet economy reached $50 billion in 2016, with 44% attributed to travel and tourism, and 30% on e-commerce/online shopping.

Southeast Asia has overcome a number of challenges to reach these milestones. Indonesia, for example, is a nation of 18,000 islands, with infrastructure only developed in the most important five islands. Many Indonesians are both unbanked and unconnected to the Internet. An estimated 74% of the population is financially excluded,[13] limiting consumer interaction with major Internet companies, especially in terms of logistics and reach. Many countries have debated regulating transportation apps: such apps can create new job opportunities, but may also harm the existing taxi economy, and the related tax proceeds. One successful example of a startup in this arena is that of GoJek; the company’s founding goal was to regulate Indonesia’s motorbike taxis, creating an insurance and transparency mechanism that increased trust despite the absence of a legal framework for transportation.

The success of these startups may indicate an opportunity for employees to later create their own ventures, utilizing the network and skills they gained from startups to succeed. Considering that many founders and startup leaders are former management consultants or heirs of regional conglomerates, this would be a significant paradigm shift. Given the talent and market available in Southeast Asia, it seems likely that its successful startups may eventually transition into household brands.[JW1]

It is likely that many startups thrive in Southeast Asia due to the level of urbanization and wealth associated with this regional growth. Many cities in the region have populations of more than 10 million; the metropolitan areas of Jakarta and Manila exceed 25 million, Kuala Lumpur, Bangkok, and Ho Chi Minh City also have populations around 10 million people. Singapore, with roughly 5 million citizens, has an average income of $66,000 per capita, near or matching the income level of New York City.[14] In addition to having per capita incomes above $8,600, these cities have access to the region’s best talent, ranging from employees of Fortune 500 companies to top-tier university graduates from the region and from developed countries. This combination of a large middle-income population combined with approachable talent allowed startups to grow in the local market, despite limitations.

Southeast Asia’s continued economic growth will depend on a strong push from the manufacturing and infrastructure sectors paired with the creative success of technology startups. Collaboration between the two traditional and non-traditional sectors could guarantee Southeast Asia’s place as one of the wealthiest regions in the world by 2030. Conflict and rejection, however, could make the goal of prosperity much harder to achieve.


[1] Source: statistics, accessed April 30, 2018; values in USD based on nominal prices for November 2017.

[2] Source: Merchandise Trade Statistics Database. year 2015, based on a presentation by Gita Wirjawan (Ancora Group)./

[3] Source: statistics, calculated by author.

[4] Source: McKinsey Global Institute, December 2014, “Unlocking ASEAN’s potential” By Kishore Mahbubani and Fraser Thompson.

[5] Source: Asian Development Bank Institute, 2014, “ASEAN 2030: Toward a Borderless Economic Community”.

[6] Source: McKinsey Global Institute, Sep. 2012, “The archipelago economy: Unleashing Indonesia’s potential”.

[7] Nikko Asset Management, Oct. 2017. The Rise of Chinese FDI into ASEAN

[8] McKinsey Global Institute, Jul. 2016. Podcast: China’s One Belt One Road: Will it reshape global trade?

[9] Luky Eko, a Cornell University graduate with a PhD in Regional Science, is the VP and Chief Administration Officer of AIIB.

[10] Unicorns are companies with valuations of above $1 billion that is not publicly listed. Southeast Asia’s seven unicorns include Grab (SG/MY), GoJek, Traveloka, Tokopedia, Bukalapak (ID), Lazada, and Garena (MY).

[11] Source:, March 26, 2018, “Grab vanquishes Uber with local strategy, billions from SoftBank”.

[12] Source: Bain Insights, Dec. 6, 2017, “So you want to win in Southeast Asia e-commerce?”

[13] Source: Bill & Melinda Gates Foundation, Jun. 2017, “Financial Inclusion Insights: Indonesia”.

[14] Brooking Institute data for 2014, nominal values. Based on research by Martin Property Institute, accessed May 10, 2018.

[JW1]This seems like two separate thoughts here, the PayPal Mafia, and the likely success of companies in Southeast Asia. Please correct if this is not the point you are trying to get across.